The present invention discloses a system and associated method for data replication based on capacity optimization utilizing existing replicas. Due to the increase in the amount of data in computing environment and business enterprises, data replication requires mechanisms to reduce data footprint, intra-file and inter-file data redundancy while providing sufficient resiliency to recover the data in cases of failure. Conventional data replication generates multiple unnecessary replicas of the data within a site that is the same as the data and/or across multiples sites.